Analysts Just Shaved Their The a2 Milk Company Limited (NZSE:ATM) Forecasts Dramatically

One thing we could say about the analysts on The a2 Milk Company Limited (NZSE:ATM) - they aren't optimistic, having just made a major negative revision to their near-term (statutory) forecasts for the organization. Both revenue and earnings per share (EPS) forecasts went under the knife, suggesting analysts have soured majorly on the business.

After the downgrade, the consensus from a2 Milk's 13 analysts is for revenues of NZ$1.6b in 2021, which would reflect an uncomfortable 10% decline in sales compared to the last year of performance. Statutory earnings per share are anticipated to plunge 24% to NZ$0.40 in the same period. Before this latest update, the analysts had been forecasting revenues of NZ$1.8b and earnings per share (EPS) of NZ$0.53 in 2021. Indeed, we can see that the analysts are a lot more bearish about a2 Milk's prospects, administering a measurable cut to revenue estimates and slashing their EPS estimates to boot.

Check out our latest analysis for a2 Milk

It'll come as no surprise then, to learn that the analysts have cut their price target 15% to NZ$15.22. The consensus price target is just an average of individual analyst targets, so - it could be handy to see how wide the range of underlying estimates is. There are some variant perceptions on a2 Milk, with the most bullish analyst valuing it at NZ$21.00 and the most bearish at NZ$9.50 per share. Note the wide gap in analyst price targets? This implies to us that there is a fairly broad range of possible scenarios for the underlying business.

One way to get more context on these forecasts is to look at how they compare to both past performance, and how other companies in the same industry are performing. We would highlight that sales are expected to reverse, with the forecast 10% revenue decline a notable change from historical growth of 39% over the last five years. By contrast, our data suggests that other companies (with analyst coverage) in the same industry are forecast to see their revenue grow 7.6% annually for the foreseeable future. It's pretty clear that a2 Milk's revenues are expected to perform substantially worse than the wider industry.

The Bottom Line

The most important thing to take away is that analysts cut their earnings per share estimates, expecting a clear decline in business conditions. Regrettably, they also downgraded their revenue estimates, and the latest forecasts imply the business will grow sales slower than the wider market. After such a stark change in sentiment from analysts, we'd understand if readers now felt a bit wary of a2 Milk.

Even so, the longer term trajectory of the business is much more important for the value creation of shareholders. At Simply Wall St, we have a full range of analyst estimates for a2 Milk going out to 2024, and you can see them free on our platform here.

Of course, seeing company management invest large sums of money in a stock can be just as useful as knowing whether analysts are downgrading their estimates. So you may also wish to search this free list of stocks that insiders are buying.

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This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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